Compliance ensures that nonprofits continue to operate within legal boundaries, avoiding penalties and preserving public trust. An independent audit reviews financial statements, including your nonprofit’s statement of financial position, related statement of activities, cash flows and notes to the financial statements. An auditor can examine profit/loss https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ segments so they can easily track expenses back to each donation or grant.

• Once again, be as cooperative as possible and set aside time to work with your firm and get them all the documents they need.
• Contact us today to start preparing for your upcoming audit and getting your financial records in line.
• Fortunately, YPTC is willing and ready to help you prepare for your nonprofit audit and lend our financial expertise to your team.
• And some nonprofit grants require a satisfactory audit before your nonprofit can receive funding.
• In brief, the IRS wants to confirm that the foundation, charity, or other nonprofit concern is following the prescribed rules of reporting and fulfilling the purpose upon which its tax exemption is based.
• It’s less of a financial audit (though, it normally includes that to some extent) and more of a check on compliance requirements and adherence to established bylaws.

State Law Nonprofit Audit Requirements: 50-State Chart

Next, auditors develop a timeline and budget requirements for completing a compliant review. Lastly, auditors determine whether the nonprofit uses donor funds in accordance with their stated goals and objectives. Major donors, government agencies, and corporate partners frequently require audited financials to approve grants or renew an organization’s funding. Donors and board members rely on audit results to understand how effectively the organization is managed and whether resources are being used as intended.

Internal audit

• It accurately reflects transactions in compliance with generally accepted accounting principles (GAAP).
• Any discrepancies or inconsistencies should be addressed immediately to avoid complications during the audit.
• Once the auditor has finished, you’ll review their recommendations and implement them to improve your financial operations.
• In conclusion, the nonprofit audit process is a journey of collaboration, data-driven insights, and strategic implementation.
• The auditor will assess the accuracy of your financial statements, examine your internal controls, and evaluate your compliance with relevant regulations through both financial audits and compliance audits.

Nevertheless, nonprofits trying to manage costs should not be shy about asking whether the third party will accept a review in place of a full audit. The third party (usually a funder) may understand the goal of cost savings and accept a review instead. Our robust donation management software protects donor data and streamlines donation reporting and analytics to ensure accuracy and time-savings for everyone involved. Internal audits are better than nothing but don’t necessarily increase public transparency and accountability—since an internal team could be the root of the problem.

Reasons Why Nonprofits Need an Audit

This is a collective effort, as noted in reflections from a SOC 2 audit, which emphasizes the importance of having the entire organization on board for successful compliance. The Ford Foundation’s experience with updating their content management system illustrates the need for adaptability and readiness for scaling operations, a lesson that’s very much applicable to the auditing process. Lastly, preparing financial statements and records is not just about compliance but about telling the story of the nonprofit’s impact.

An organization’s revenue and donations are perhaps the most important aspects of running a nonprofit. Nonprofit executives must ensure that finance teams and internal systems are audit-ready well before auditors arrive. Once the auditor completes their work, they’ll compile their findings into a report and present it to your nonprofit. The first thing to know about this report is that if it isn’t clean, that is totally fine! What really matters isn’t how many recommendations the auditor made—it’s how promptly and thoroughly you act on them.

Not only does a well-organized audit process add weight to your standing with supporters, it’s also excellent practice for good financial management and ensuring regulatory compliance. Tracking and reporting systems must capture specific financial data related to each grant, such as expenditures against budgeted categories and timeframes. Federal grants in the United States, for example, may require adherence to the Uniform Guidance (2 CFR 200), which outlines administrative, cost, and audit requirements. Nonprofits must ensure their financial Top Benefits of Accounting Services for Nonprofit Organizations You Should Know systems can meet these reporting standards to maintain eligibility for funding. Assessing internal controls ensures the integrity of financial reporting, safeguards assets, and promotes operational efficiency. For nonprofits, these controls not only prevent fraud or errors but also ensure resources are used in alignment with their mission.

It can be mandated by legal requirements, grant agreements, or board policies and offers a comprehensive view of the organization’s financial health and integrity. Auditors scrutinize financial statements, verify transactions, and assess internal controls to identify potential areas for improvement. It’s important that nonprofits understand the different types of audits to fulfill their financial and regulatory responsibilities. Either way, retaining an independent auditor to perform a financial review of accounting records can only help your business. If you submit audited financial statements to donors and other sources, they will give your grant requests greater weight than those applications without such evidence of financial health.

Auditor Selection

• Reviewing your financial statements and procedures allows you to assess your financial management and improve your strategy going forward.
• If your nonprofit is not required to have an audit, you may still choose to have one conducted on a voluntary basis.
• A financial statement audit is a thorough review of your financial statements to determine if your financial statements present fairly, in all material respects, in accordance with generally accepted accounting principles.
• With differing state-specific rules layered on top of federal mandates, it’s easy to feel overwhelmed.
• Kelly has expertise in audit, review, and compilation services across diverse industries, including nonprofit organizations, construction, manufacturing, and technology.

As a nonprofit, your relationship with donors and government entities is vital, and has to be built on trust. These components collectively contribute to a robust audit process, fostering trust among stakeholders in the non-profit sector. Your organization’s development team assigns an audit committee to perform internal audits.

Compiling reports

Although centralized, the system can be configured to facilitate access to external auditors so they can run the nonprofit audit remotely. Your system must feature a robust audit trail to track all changes and activities, ensuring transparency and accountability throughout the many tasks, documents, and workflows in the system. Check your state’s nonprofit audit requirements to determine if you fall into this category. Not all nonprofits are required to undergo an audit, but there are specific circumstances when it may be necessary.